Project AppraisalProject:A project is an investment activity in which resources are expanded or invested to create benefit over an extended time period. OR “Any economic activity which is related to future benefits.”Project vs. ongoing activity

Project Definite beginning and ending Temporary in nature Produces a unique product or service Resources are dedicated to project Ending is determined by specific criteria

Ongoing Activity No definite beginning or ending Ongoing nature Produces same product over and over Resources are dedicated to operations Processes are not completed

Types of Organizations1. Functional Organization: Functional organization is structure in which authority rests with the functional heads; the structure is sectioned by departmental groups.2. Projectized Organization:Any organizational structure in which the project manager has full authority to assign priorities, apply resources, and direct the work of persons assigned to the project.

Advantages- Project managers have ultimate authority- Project managers are primary decision makers- Focus of organization is project work

Disadvantages- Re-assignment of team members- Idle time- Competition among team members

3. Matrix Organization:In matrix organization resources a project requires are not permanently assigned but are obtained from the departments which are controlled and monitored by functional managers.Matrix is an organization structure where employees report to multiple managers including one functional and at least one project manager.

Advantages- Focus of organization is project work- Specialty skills can flourish- Opportunities for growth

Disadvantages- More than one boss- Confusing duties- Conflicts between managers

Types of Projects1. New ProjectThe project activity is taken for the very first time.2. Extension ProjectWhen you extend your existing setup that is extension project.3. Rehabilitation ProjectThe process of covering weak aspects of a project is rehabilitation.4. Balancing Modernization & Replacement Projects (BM&RP)Balancing Projects: Balance the capacity of the gap between production and supplies.Modernization Projects: Replace the obsolete technology with modern technology.Replacement Projects: A project or plant which needs to be replaced to continue the operations.Project Lifecycle1. Pre-Investment Phase

Opportunity Study Pre-feasibility Study Support Study Feasibility Study

2. Investment Phase3. Implementation Phase4. Operational Phase

Opportunity Studies1. Natural Resources2. Existing Agriculture pattern3. Future demand for products4. Import pattern to identify import substitutes5. Manufacturing sector successful in other countries similar development levels6. Possible inter-linkage with other industries national or international7. Possible extension (backward or forward)8. Possibilities for diversification9. Possible extension to enhance capacity in order to achieve economies of scales10. General Investment Climate11. Industrial policies of country12. Cost and availability of Factors of Production13. Export possibilitiesOpportunity study is of two types1. General Opportunity StudiesArea study: Select a particular areaSubsectoral study: select a particular sectorResource based study: check the availability of materials2. Specific Opportunity Studies- Transformation of project idea into broad investment proposition- Include certain basic info- To stimulate investor response- Economic indicators findingsPREFEASIBLITY STUDYObjectives- Investment decision should be taken on the basis of provided information- Either to go for feasibility study first- Either to go for support or functional study- The information is adequate to decideExamine Broadlya. Market and plant capacity

Demand and market study, sales and marketing, production program, plant capacityb. Material inputsc. Location and sited. Project engineering

Technologies and equipments, civil engineering workse. Overheads, factory and administrationf. Man power, labor and staffg. Project Implementationh. Financial analysis, investment cost, project financing, production, cost and profitability

Structure of prefeasibility study is same as feasibility study. It can be occasionally bypassed

Sources of Information1. Opportunity machinery supplier2. Existing Units

Source of detailed information Source to identify problems Source of getting new ideas

3. Trade AssociationsProvide different type of information and publish data time to time.

Industrial Associations and Sectoral Associations4. Chamber of Commerce- In a particular geographical area- All business persons are members- Maintain a library and supporting material5. Government bodies/institutions-provide advisory and information services-Investment Promotion Bureau- Industrial Investment Schedule (discontinued)6. ConsultantsCollect information, prepare reports against their fees7. Financial Institutions8. Government Departments9. Publications; news papers, journals, websites, blogsSUPPORT / FUNCTIONAL STUDY1. Market study of the product to be manufacture2. Raw materials and input study3. Laboratory and pilot plant study4. Location studies5. Economies of scale studies6. Equipment selection studiesINVESTMENT PHASE- Decisions for financing project in taken- Financial institutions review feasibility report

Financial Institutiono Deputy Managing Director

Appraisal Preliminary Appraisal Committee Detailed Appraisal Committee

Implementation Recovery

IMPLEMENTATION PHASEa. Project Design- Time scheduling- Site preparation and probing- Elaboration of sketches- Final selection of technology- Civil work planb. Negotiation and Contracting- Negotiation- Contracting

o Engineerso Suppliers of raw material of civil workso Suppliers of raw materialo Suppliers of technology and equipmento Consultantso Finance Providers

c. Construction- Site development- Civil works- Providing Utilities

- Installation of machineryd. Training- Through domestic experts- Through local expertsOPERATIONAL PHASE

- Trial Operations- Commercial Operations

Project Location and SiteFactors for selection of location1. Government Policies2. Raw Material consideration3. Market consideration4. Local conditions

- Law and Order- Transportation facilities

Describe location- Country - Province- District- Specific Town or City

5. Fundamental Requirements- Underground water conditions- Quality of water- Utility Supply

6. Check possible alternative locationsSite Selection Factors1. Cost of Land2. Local conditions and fundamental requirements

- Transportation facility- Surface of land- Water facility- Man power availability- Waste disposal- Utilities- Cost of construction

3. Public Policy4. Private Interest5. Site preparationDescribe site

- District / Town- Road- Plot number

Financing- Internal- External

- Individual Loans: acquire desired amount from various sources / banks- Consolidated Loans: acquire loan from a single bankDevelopment of AssumptionsAssumptions regarding production and salesa. Production capacity of different products and machinery allocationb. Types of products being produced with specifications

c. Daily productiond. Annual productionRated Capacity:Capacity determined by machinery supplier with a guarantee to produce up to that levelOperating Efficiency: How plant would operate efficientlye. Ending inventory levelf. Export sales vs. local salesg. Selling pricesh. Give 3 years details of all assumptionsAssumptions regarding cost of productiona. Raw material costb. Labor costc. Manufacturing overhead

- Fixed cost- Variable cost

d. DepreciationAssumptions regarding operating expense

a. Administrative expenseb. General Expensec. Selling expense